business / Culture / Economy

The Role of Trust in the Economic Crisis

When I was 8 years old, my family and I spent our summer break on a farm in Austria. A couple of animals lived on the farm and one of them was “Bachstelzchen”, a really cute cat. One day my brother came over to me and said: “Hey, you know what’s really fun? Grab Bachstälzchen’s tail and don’t let go!” I didn’t know why that would be so cool, but I trusted my older, cooler brother and followed his advice. The result: a huge scratch on my arm. I swear I can still see it!

Paul J. Zack, Professor of Neuroeconomics at Claremont Graduate University , insists, that trust is indispensable not only in friendships, love and families, but even in organizations, politics and in the economic exchange. The professor speculates without trust among trading partners or trust in governments, market transactions and political legitimacy would break down and collapse. Going even further he speculates that trust contributes to economic, political and social success to a high amount.

Well, this is an interesting statement, which leads me to the following question:

Which role does trust play in the current economic crisis?

Neuroeconomist and winner of the Nobel Memorial Prize in Economics in 1972, Kenneth Arrow, stresses the importance of trust in any economic or social transaction. Also, he accuses the lack of mutual confidence and trust towards oneself to be responsible for much of the economic crisis.

Harold James, Professor of Economics at Princeton University, applauses Arrow by saying: “If we don’t trust each other we can’t have a society”.

So far I found some interesting statements, but what really confuses me:

How can trust be measured?

Interestingly, the World Bank asked the same question and created the World Values Survey in the 1980’s. The international social survey report direct information on the level of trust of people, by asking the simple question.

“Generally speaking, would you say that most people can be trusted or that you need to be careful in dealing with people?”

Two striking facts can be taken out of the research.

First of all, Scandinavian countries score much higher than Mediterranean ones. And secondly, a strong correlation pattern between the level of trust and levels of income per capita can be noticed.

Is the lack of trust the reason for the economic crisis in the Mediterranean countries?

Daniel Hameresh supports the statement: A number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.

Another interesting illustration can be found above. It shows the change of GDP per capita of different countries, considering the Swedish level of inherited trust.

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3 thoughts on “The Role of Trust in the Economic Crisis

  1. hey carobremer,
    I love your introductory sentence!!! It is always interesting to connect your post to a personal background or story. I also liked the link to your actual topic.
    overall you did a great job!

    • Hey carobremer,

      good job! I like your post a lot, especially the first paragraph in which you reveal some of your childhood memories and connect it to the actual theme of the post! That definitely catches the readers attention. Moreover you have used quotations which gives substance to your post and it makes it much more interesting. I also believe that you have chosen great images.One small hint to make your layout even better: Make your text justified (Blocksatz). All in all well chosen topic , it is recent!

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